I help parents reduce the cost of college and pay for it as wisely as possible. With the cost of the most expensive colleges today now in excess of $65,000 per year, even students from families with incomes over $200,000 can qualify for need-based aid. But it's often a combination of tax savings and financial aid that saves families the most money when paying for college. I am the CEO of Stratagee.com, a provider of college planning advice to families and college planning software and services for financial advisors. I have spent twenty two years pioneering this field, integrating expertise in college admissions, financial aid, tax aid and the family's personal resources into a best strategy.

With College 'Borrowable' But Not Affordable: Loan Rates Set To Double

With interest rates set to double July 1st from 3.4% to 6.8% for federal subsidized student loans, President Obama spoke from the rose garden at the White House this morning on efforts to keep student

WASHINGTON, DC - JUNE 21: 2012. U.S. President Barack Obama urges Congress to pass legislation that would keep federal student loan rates from doubling during an event in the East Room of the White House June 21, 2012 in Washington, DC. Education Secretary Arne Duncan said that if Congress doesn't act, subsidized student loan debt would double to 6.8 percent on July 1, affecting nearly 7.4 million people who currently hold loans like Pell Grants and Stafford loans. (Image credit: Getty Images via @daylife)

loans affordable. The press release headline read, Remarks by the President on College Affordability. In truth, the president’s comments were not really about making college affordable but, rather, continuing to make college “borrowable.”

Currently, federal direct student loans have fixed interest rates of 3.4% on subsidized loans (the ones the government pays the interest on while the student is in college) and 6.8% on unsubsidized loans (the student owes interest from day one). Various legislation from the House and Senate have been proposed that link the interest rate of such loans to some benchmark, thus making the rate vary over the life of the loan and raising the cost to student borrowers. This is what most of us dealt with when taking out student loans in the ‘80s and ‘90s, but the interest rate was capped for part of that time at around 8.5%.

Despite all the noise and political posturing, we can expect to see a return to variable student loan rates soon. It is just a matter of what the rates will be tied to, and possibly capped at. There is a good chance with this Congress that we may see the can kicked down the road two more years so that Washington can have time to get a solution in place, what the president called déjà vu, since that is what has happened so many times in the past with anything dealing with budgets and deficits.

Speaking of deficits – where does a government that is broke by any traditional definition, get the money to lend students to begin with?

All college student loans are now offered directly through the federal government, but since the federal government is suffocating under a pile of debt and continuing to run huge deficits every year, the government has to issue more debt every month just to keep the country running, let alone have funds to lend to students for college. So, while definitely important to overall college affordability, given the state of the country’s massive debt burden, worrying about interest rate changes on student loans is a bit like rearranging deck chairs on the Titanic.

Who buys our government’s debt so that we can keep lending to students? Three of the top holders of US government debt are Japan, China and Russia. So, while it is clearly an oversimplification of the Direct Student Loan Program to say that Stafford Loans are backed by China, Russia or Japan, hopefully you get the point here about the bigger problem of the country’s debt. Our kids are not just competing against foreign students to get into college. Indirectly, if you think of the government as one big sinking fund (pun intended), students are also relying on foreign countries to provide the loan with which they pay the college bill once they get accepted for admission.

But wait, there’s more. The government is also promising that they will forgive student loans for students entering into various types of service jobs in the future. Let me explain how this works.

1) The government issues debt that other countries buy, and the government provides you with a student loan, 2) you graduate from college in debt and enter a job for which you will receive pay from the government. Because the government is broke, the government issues more debt to give you your paycheck and 3) because you are working in one of the jobs that entitles you to have your student loans repaid, the government issues another round of debt to repay your student loans. So they borrow money to lend you, and then borrow more money to pay you and then borrow more money to forgive you.

A few decades ago, a great TV series called Northern Exposure was based on a tightly wound medical student from New York City named, Joel Fleischman. Fleischman, shackled by his obligation, was “working off” his medical degree with comical disgust, dismayed that he, a highly trained New York doctor was relegated to public service at the end of the earth, the remote tundra of Cicely, Alaska. Northern Exposure turned Fleischman’s situation into a comedy that we could laugh at each week.

The joke, however, was on us. Today, twenty years later, millions of kids are graduating college with $50,000 to $100,000 in student loan debt, but they didn’t attend years of medical school like Fleischman, to rack up their debt. They just went for a two or four-year degree. Almost half of the $1 trillion in student loans are in deferral, meaning a lot of kids aren’t paying their loans at the moment, another startling development in the ongoing student loan crisis.

So, use caution as you approach the college funding drive thru. Would you like that student loan from China, Russia or Japan, and would you like to “Super Size” it and go to graduate school? It’s no wonder the millennial generation is bloated with $1 trillion in student loan debt.

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